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Sovereign and corporate credit risk: Evidence from the Eurozone

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  • Mascia Bedendo

    () (Audencia Recherche - Audencia Business School)

  • Paolo Colla

    () (Bocconi University - Bocconi University [Milan, Italy])

Abstract

We study the impact of sovereign risk on the credit risk of the non-financial corporate sector in the Eurozone using credit default swap data. We show that an increase in sovereign credit spreads is associated with a statistically and economically significant increase in corporate spreads and, hence, firms' borrowing costs. A deterioration in a country's credit quality affects more adversely firms that are more likely to benefit from government aid, those whose sales are more concentrated in the domestic market, and those that rely more heavily on bank financing. Our findings suggest that government guarantees, domestic demand, and credit markets are important credit risk transmission mechanisms.

Suggested Citation

  • Mascia Bedendo & Paolo Colla, 2015. "Sovereign and corporate credit risk: Evidence from the Eurozone," Post-Print hal-01157174, HAL.
  • Handle: RePEc:hal:journl:hal-01157174
    DOI: 10.1016/j.jcorpfin.2015.04.006
    Note: View the original document on HAL open archive server: https://hal-audencia.archives-ouvertes.fr/hal-01157174
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    More about this item

    Keywords

    sovereign risk; corporate credit risk; credit default swaps; Eurozone;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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